Worries about the fiscal cliff depressed commodities Thursday

The corn market suffered from a dearth of fresh news Thursday, with diminished export sales apparently remaining the dominant fundamental factor. Indeed, pragmatic considerations may become much more important to traders during the days ahead. For example, during the recent drop large speculators cut their long positions to their lowest level since June. Nearby futures are also approaching technically oversold levels. Moreover, the March contract is trading just above major support associated with the $6.83 1/2-$6.90 1/2 chart gap created over Independence Day. If bears cannot force nearby prices through that gap, the market could turn decisively higher. Conversely, the $7.00 level may emerge as significant resistance. March corn ended the day having slipped 2 1/4 cents to $6.91/bushel and December fell 3 1/4 cents to $5.96.

Soybean futures were seemingly boosted by concerns about Malaysian flooding and its impact upon the global vegetable oil market (e.g. palm and soybean oil) in Wednesday night trading. Talk of improving Chinese buying apparently supported the market as well, with traders responding well to sales announced the day before. However, comments by Senate Majority Leader Harry Reid indicating no deal on the so-called U.S. fiscal cliff undercut the equity markets and boosted the dollar. Neither of those developments is helpful for the agricultural markets, since they imply reduced demand from domestic and international customers, respectively. Finally, the legume market may have suffered from news that Argentine plantings have not suffered from excessive moisture in recent weeks, since Chicago traders were expecting significant reductions. January beans settled 5 1/4 cents to $14.19 1/4 per bushel, whereas January soyoil rose 0.16 cents to 48.45 cents/pound and January meal sank $1.1 to $430.2/ton.

The wheat market also continued losing ground Thursday morning, with traders concentrating upon the slowness of recent export sales. Many in the industry view U.S. wheat as being the cheapest on the global stage, so the limited movement seems to be suggesting golden grain values will have to decline around the world. Disappointing financial market action is not helping wheat prospects either. Bulls cannot be happy with futures lack of response to the persistent drought over the Southern Plains either, since lack of moisture could substantially reduce 2012-13 grain production. March CBOT wheat slid 2 1/2 cents to $7.72/bushel Thursday, while March KCBT wheat edged 1/2 cent lower to $8.24 and March MGE futures tumbled 5 cents to $8.64.

Financial market developments seem to affect cattle futures with surprising frequency, particularly when traders see U.S. dollar and equity indexes diverging. For example, the combination of greenback strength and tumbling stock prices, as seen Thursday, usually translates into reduced export and domestic demand, respectively, for American products. Thus, it was not terribly surprising to see cattle leading the livestock complex lower this morning. Flat midday beef quotes didn’t help the situation, since packer margins remain deep in the red. On the other hand, bulls may get a fresh boost after country cattle began trading around 127 cents/pound, which represents a 1.0 cent rise from last week. February live cattle futures fell 0.72 cents, to 133.05 and its April counterpart slumped 0.37 cents to 136.72 cents/pound.

The hog market also seemed unable to overcome the negative economic implications of the Thursday combination of dollar strength and equity index losses, although they posted a substantial rebound later in the CME session. Anticipation of late-year cash and wholesale weakness may be undercutting Chicago hog prices at this point, especially with pork loin values repeating their recent pattern of flattening out during the year-end holiday season. The industry should probably expect a great deal of book-squaring Friday, since the end of the year is looming and the quarterly USDA Hogs & Pigs report will be released at 2:00 PM CST. February hogs tumbled 0.42 cents to 87.02 cents/pound Thursday, while the June contract dropped 0.50 cents to 100.15.

After marching steadily higher in recent weeks, cotton futures reached a major high Thursday morning. However, industry concerns about the negative impact of going over the fiscal cliff apparently undercut the white fiber market, since the implied increase in taxes might easily cause consumers to curtail their apparel purchases in early 2013. The resulting price drop was probably exaggerated when the March contract violated technical support associated with its 10 and 200 day moving averages. The inability to sustain the Wednesday push above the 200-day MA may bode ill for the short-term outlook, especially since many fund managers like to clean up their books at the end of the calendar year. Conversely, the nearby contract climbed back above its 10-day MA, thereby implying considerable underlying support. March cotton ended the day 1.05 cents lower at 76.01, while December fell just 0.52 to 78.49 cents/pound.